I was discussing this on a recent post and RobThorpe gave me a very convincing writeup that the productivity-wage gap is primarily a measurement artifact, and not a real driver of income inequality.
And after a search here, I see that from the 80's to the 00's one of the main drivers in income inequality seemed to be a shift in the labor market's valuation of skilled vs unskilled labor – college degrees (among other things) became more valuable. But that doesn't help explain the increasing gap between wage and capital income shares since then (or before).
After I drop the productivity-wage gap idea, I don't have any convincing answer for why the gap between capital income and wage income has continually increased. What are the drivers that are making it increase?
More specifically, when I'm looking at this, I find the best representation (to me) to be the % share of income going to the top 1% (or higher, if the data allows), since around that level the wage portion of the income becomes small and the capital portion of the income becomes large.
Note, for this I am only talking about income inequality, not wealth – though wealth inequality drives income inequality by ROI, I don't see why this would continue getting worse, especially when more committed capital should result in competition that drives down ROI's.
Some of my theories / things I've read elsewhere:
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Longer life spans -> more time for compounding -> capital's returns expand over wages
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Better technology scaling -> more returns from less work -> labor's value versus IP declines
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Cheaper foreign labor -> weaker labor markets -> more profits to capital
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Automation -> Requiring more capital, but lowering labor's share of the gains.
But what are the real major drivers of this rising gap?
What are the primary drivers that are increasing the gap between capital income and wage income inequality in the US?
byu/BlazeBulker8765 inAskEconomics
Posted by BlazeBulker8765
1 Comment
the link below is the most accessible review ive seen on the topic. I’ll note for the audience a few points of what any explanation needs to address:
1. within high income countries, the decline in labor share is largely a US and Canada specific trend
2. most of the decline happens post-2000
so for automation, you have to be careful because lots of countries, e.g., germany, became *more* automated than the US and maintained their labor shares. Likewise for longer life spans — if anything this cuts against the US as the US has not had the same gain of life span as other countries.
also,
> I was discussing this on a recent post and RobThorpe gave me a very convincing writeup that the productivity-wage gap is primarily a measurement artifact, and not a real driver of income inequality.
I would disagree with this! I think the pay-productivity gap is *primarily* a gap that measures inequality, specifically between the mean and median worker.
https://jzmazlish.substack.com/p/why-is-the-labor-share-of-income?utm_source=profile&utm_medium=reader2